Index Outlook: Investors must tread with caution

Both the Nifty and the Sensex surpassed near-term barriers, but face a key hurdle ahead

It was a volatile week for Indian equities as the key benchmark indices — the Nifty and the Sensex — traded within a narrow band. Individual stocks were in the limelight, while healthcare, consumer durables and IT stocks led the rally. The President’s assent to the Ordinance to amend the Insolvency and Bankruptcy Code that excludes erring promoters from buying back their stressed assets, boosted the market sentiment. In the coming week, the focus will be on the November month derivatives expiry, movement in the crude oil price and November month auto sales numbers.

Nifty 50 (10,389.7)

Amid volatility, the Nifty index managed to surpass the immediate resistance level of 10,300 last week. Also, the index breached its 21-day moving average and closed slightly above it. It added 106 points or 1 per cent.

Short-term trend

With the ongoing rally from the support level of 10,100, the index appears to have resumed its short-term uptrend that has been in place from the September low of 9,687. That said, the rally lacks strength, with daily volumes gradually decreasing. Moreover, the index faces a key hurdle ahead in the 10,450-10,500 band; this resistance zone could create some difficulty and volatility for the index.

However, there are some signs of optimism in the daily relative strength index and price rate of change indicator. The daily RSI has entered the bullish zone from the neutral region and the price rate of change has also entered the positive terrain, implying buying interest. A strong breakthrough of the key immediate resistance is possible. In such a scenario, the index can continue to trend upwards to 10,544 and 10,600 in the short term. Subsequent hurdle beyond 10,600 could be at 10,700.

Conversely, if the index fails to move beyond 10,500, a downward reversal can find support at 10,300 initially. Further, a slump below this level can drag the index down to 10,200 and 10,100 levels in the short term. As long as the index trades above the significant support in the 10,000-10,050 range, the short-term uptrend will remain in place. Next supports below 10,000 are at 9,900 and in the 9,700-9,750 band.

Medium-term trend: The index faces a key medium-term resistance ahead at 10,500. A decisive break above of this level could reinforce the medium-term uptrend and take the index higher to 10,921 with minor halts during the up-move. On the other hand, a conclusive plunge below the key support zone of 9,700 and 9,750 will be a threat to the medium-term uptrend. The index can witness selling pressure and decline to 9,500 and 9,300 levels which are next vital supports.

Nifty Bank (25,779.6)

It was a lacklustre week for the Bank Nifty which moved sideways in a very narrow range, testing 25,800 levels. It marginally added 51 points or 0.2 per cent last week. The index hovers well beyond its 21 and 50-day moving averages. Though the daily indicators feature in the positive territory, they signify weakness.

The index also faces a key barrier at 26,000 and faces the challenge of breaking above this level. Strong break of 26,000 will bring in fresh bullish momentum and take the index higher to 26,200 or 26,400 levels in the short term. Traders with a short-term view should tread with caution and initiate long positions on a strong rally beyond 26,000 levels with a fixed stop-loss.

Any corrective decline seen find supports at 25,600 or 25,500 levels. Tumble below 25,500 can drag the index lower to 25,200 and then to 25,000 in the short term. To alter the short-term uptrend, the index needs to decisively close below 24,700 levels.

Sensex (33,679.2)

The Sensex added 336 points or 1 per cent in the previous week and breached a key resistance around 33,300. The index hovers well above its 21-day moving average. The indicators in the daily chart feature in the positive territory, backing the current up-move. Having said that, the index tests a key next resistance at 33,700 now and faces a vital psychological barrier ahead at 34,000 levels. Strong break above these barriers is required to take the index northwards to 34,500 in the medium term. But the inability to surpass either 33,700 or 34,000 can keep the index trending sideways in the short term. Significant supports at 33,300 and 33,000 can provide base for the index. Next key base level is placed at 32,700. Only a strong plunge below the key trend-deciding level of 32,400 will mitigate the short-term uptrend and drag the index lower to 32,000 and 31,700.

Global cues

In the prior week, the Dow Jones Industrial Average gained bullish momentum and advanced 199 points or 0.9 per cent to close at 23,557.9 levels. Now, the index tests resistance at 23,600. Strong break above this resistance is needed to strengthen the uptrend and take the index to 23,800 and then to 24,000 in the short term. However, a downward breach of the immediate support level of 23,300 can bring back selling pressure and pull the index down to 23,000 in the same time frame.

The Nikkei 225 tests a crucial resistance at 22,500 amid volatility. It closed at 22,550. Conclusive breach of the hurdle at 22,500 can take it northwards to 23,000 in the short term.

Key short-term supports are placed at 22,250 and 22,000, which can provide cushion if the index witnesses corrective decline in the near term.

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